20VC with Harry Stebbings - Julia Hoggett, CEO @ LSEG: The Myths and the Reality of The London Stock Exchange
The discussion highlights the disconnection between UK society and its capital markets, emphasizing the need for regulatory reform and domestic investment incentives. The UK has strong universities, entrepreneurship, and a significant capital market, but lacks domestic economic integration. Regulatory changes have made it difficult for retail investors to access markets, and pension reforms have reduced investment in risk assets. The UK needs to leverage its institutional capital and create a conducive environment for companies to list domestically. The conversation also touches on the perception of US markets being more attractive, despite data showing mixed results for UK companies listing in the US. The UK must focus on incentivizing domestic investment, improving pension fund structures, and celebrating entrepreneurship to drive growth and innovation.
Key Points:
- Reform regulations to reconnect UK society with capital markets.
- Incentivize domestic investment to boost the UK economy.
- Improve pension fund structures to support risk asset investment.
- Challenge the perception that US markets are always better for UK companies.
- Celebrate entrepreneurship to foster innovation and growth.
Details:
1. 🔍 Unpacking UK's Capital Markets Disconnect
- Stamp duty in the UK imposes a financial burden on investors choosing UK stocks, creating a preference for US or European stocks where such charges do not apply, thereby discouraging investment in the UK market.
- In the last decade, only 20 UK companies have listed in the US with capital raises over 100 million. Of these, nine have delisted, and just four are trading positively, with the majority experiencing over an 80% decline, indicating challenges in maintaining value post-listing.
- The impact of stamp duty is a significant factor contributing to the disconnect, as it directly affects investor decisions, making UK stocks less attractive compared to foreign options.
- Historical trends suggest that the UK market's attractiveness is diminishing, as evidenced by the underperformance of UK companies in the US market, which suggests structural issues in how UK businesses are perceived internationally.
- To address these issues, a strategic reevaluation of policies such as stamp duty could be considered to enhance the competitiveness of UK capital markets, potentially increasing investor confidence and market activity.
2. 🌟 Julia's Path to Leading LSE
- Julia's career trajectory led her to become the CEO of LSE through a series of strategic decisions and realizations.
- In the summer of 2020, Julia noted that Apple's market value exceeded that of the FTSE 100, prompting her to consider ways to drive change in financial markets.
- While serving as Director of Market Oversight at the FCA, she was responsible for overseeing market conduct and ensuring market integrity, which positioned her well for leadership at the LSE.
- Shortly after her realization about Apple's valuation, a headhunter reached out to her regarding the LSE CEO position, marking a crucial turning point.
- Julia had to decide between continuing her impactful role at the FCA, where she contributed to market integrity, or seizing the opportunity at the LSE, ultimately choosing the latter to pursue broader industry influence.
3. 🌍 Leveraging UK’s Economic Strengths
- The UK has world-leading universities fostering innovation and entrepreneurship.
- The UK ranks third globally for creating unicorns, trailing only the US and China.
- The UK's capital markets are recognized as world-leading, yet there is a lack of self-recognition of this status.
- Over the last 30 years, the UK has established itself as a global financial center, but has been less successful in boosting its domestic economy.
- The UK can simultaneously enhance its role as a global financial center and strengthen its domestic economy, without these goals being oppositional.
- The UK's focus on serving the EU's single market has contributed to a disconnection from its domestic economic priorities.
- To enhance the domestic economy, the UK could focus on integrating financial innovations with local industries, thereby creating a synergy that supports growth.
- An example of successful domestic economic initiative is the collaboration between tech startups and traditional sectors, which has led to significant productivity improvements.
- By recognizing and capitalizing on its strengths, the UK can create a balanced approach that supports both global financial prominence and domestic economic vitality.
4. ⚖️ Navigating Regulatory Hurdles
- The disconnection of society from capital markets in the UK is attributed to regulatory reforms that have made it harder to access financial advice and regulated markets.
- Increased regulatory barriers have been put in place under the guise of protecting retail investors, leading to a disenfranchisement of these investors.
- The straightforward user journey in the cryptocurrency world contrasts with the challenging environment created by traditional financial regulations.
- Pension reforms following the mirror pension scandal resulted in company-defined benefit pension schemes being brought on balance sheet, causing volatility in company earnings linked to pension funds.
- To reduce earnings volatility, companies closed defined benefit pension schemes and reduced investment in risk assets, impacting long-term risk-taking and investment in the country.
- The speaker suggests that the reduction in growth post-global financial crisis can be traced to these trends over the past 20-30 years.
- Despite these challenges, the UK has the second largest pool of institutional capital in the world and great universities, indicating potential for reversing these trends.
- Potential solutions include reducing regulatory barriers to make capital markets more accessible to retail investors and encouraging long-term risk-taking by reforming pension schemes.
5. 🔄 Pension Reforms & Investment Strategies
5.1. Regulatory Enhancements
5.2. Pension Reforms
5.3. Reform Agenda
5.4. Defined Benefit and Contribution Schemes
5.5. Mansion House Compact and Investment Mindset
5.6. Institutional Ecosystem
6. 🇬🇧 Listing Dynamics: London vs. US
6.1. Performance of UK Companies Listing in the US
6.2. Liquidity and Investor Base
6.3. Regulatory and Tax Considerations
6.4. Valuation and Market Perception
7. 💼 Talent Retention in London's Tech Scene
7.1. Challenges in Talent Retention
7.2. Strategies for Talent Retention
8. 💰 Competitive CEO Compensation
8.1. Competitive CEO Compensation Strategies
8.2. UK Financial Market Position
9. 📉 Tackling Stamp Duty's Impact
- Encouraging pension funds to invest in UK equities through incentives can increase government revenue from stamp duty.
- Providing tax breaks for retaining cash in the UK could lead to a significant increase in investment flows into UK equities.
- Tapering stamp duty around retail tickets of a certain size can reincentivize retail participation and reduce market friction.
- A strategic mechanism is required to gradually reduce stamp duty without a sudden loss of revenue for the government.